In the US, we’ve a tax-advantaged Employee Stock Purchase Plan (ESPP) under which employees can purchase stock in their companies at a discount and enjoy tax benefits.
In the UK, there’re four tax-efficient share plans. One of them is the Sharesave scheme which is almost no risk and is used by around 500 UK companies.
If you’re considering rewarding your UK employees with this scheme, then this checklist is going to explain the scheme rules in plain English and help you customise your plan to best suit your company.
A Sharesave scheme (also known as Save-as-you-earn, or SAYE) is a tax-efficient savings plan. Each month, participants contribute a fixed amount of their net salary into a savings pot for the length of the plan. When the plan ends, employees can use their savings pot to purchase shares at a price that was set initially or simply take back all their savings.
For participants, it’s almost a no-risk scheme and can help build wealth in a tax-efficient way.
As an employer, it doesn’t only get you financial benefits but also motivates employees to work harder and be productive to grow the business together. Check out our complete guide to Sharesave to learn more about how it works and its benefits.
Checklist for setting up SAYE scheme rules for your own plan
- Check Eligibility
- Key details: the length of the scheme, eligible participants, exercise price, the range of participants’ contributions
- Other details or rules: invitation period, exercise period, etc
- Scheme approval
- Registration with HMRC
- Scheme management & administration
1. Check Eligibility
2. Key Details
A. The length of the scheme
Options for business: 3 years or 5 years
While it might be tempting to go for a 5-year plan to keep your employees longer, your plan won’t be appealing to them. These days, the average young employees switch jobs every 2.4 years.
If your plan is 3 years long, then it’s more appealing to employees, while potentially increasing your average worker’s stay from 2 to 3 years.
B. Eligible participants
Options for business: To include or not newer employees (fewer than 5 years’ service)
Sharesave scheme is an all-employee scheme that must be open to all employees and full-time directors with 5 years’ service or more during which employees and directors must have been continuously employed. But, you can set up a minimum service requirement (not more than 5 years) for your plan.
C. Exercise Price
Options for business: Up to 20% off the market value at the time the option is granted
The Exercise price is the price paid by participants to purchase the shares when the scheme ends.
It’s common to see companies offer the maximum discount to make the exercise price low to boost enrolment rates. Also, employers can claim corporation tax relief on the difference between the market value of the shares at the date of exercise and the exercise price.
D. The range of participants’ contributions
Options for business: Between £5 and £500
Based on the SAYE scheme rules, it can’t be lower than £5, or higher than £500, but companies often set their own limits within these.
This decision comes down to how many shares you want to distribute. But again, you also need to consider how your rules impact the attractiveness of your Sharesave scheme.
It’s worth noting that the maximum limit applies across all the plans a participant is enrolled in.
3. Other SAYE scheme rules / details to consider
A. Invitation period: When you launch your scheme, you’ll need to announce your plan and give employees a reasonable period of time to enrol (i.e. invitation period). A Sharesave invitation usually closes in a few weeks.
B. Exercise period: When the scheme ends, participants will be allowed to exercise (purchase) their SAYE share options within the exercising period. So, you should also consider the length of the exercise period. Companies usually provide employees with 6 months starting from the end date to exercise the options.
C. Allowed suspending the contract? Usually yes.
D. Allowed changing the monthly contribution? Usually no.
E. Allowed exercising the shares if participants leave the company? Usually no but they will be able to get back all the contributions that have been saved in the scheme.
4. Scheme approval
Once you have the Sharesave rules and details sorted, you’ll need to get approval. A new Sharesave Scheme means you’re issuing new shares, so it only makes sense that your Board needs to approve it. You’ll need a lawyer for this part, as there are specific guidelines you need to follow.
5. Registration with HMRC
6. Scheme management & administration
Now you need to figure out the logistics of the Sharesave plan.
Remember participants’ contribution amount is deducted directly from their paycheck? Your payroll department is going to have a massive new responsibility – the payroll deductions.
Not only that but there is a massive amount of employee data that now needs to be handled and processed – who is participating, how much they’re contributing, what their status is, etc. And it needs to be handled accurately, rapidly and in accordance with GDPR.
Have we mentioned the tax scenarios that need to be addressed? Owning shares in a company affects your participants’ tax implications. They need the proper paperwork and documentation in a timely manner.
If all of this is starting to make your head spin, don’t worry. There’s a smart, automated platform with a team of experienced professionals ready to support you and your employees.
Let Global Shares administer your SAYE scheme
Global Shares has been managing equity compensation plans of all different types, shapes and sizes for over 15 years now.
Our Implementation team will take you through the process, making sure that you’re getting the most out of your Sharesave plan with the least amount of hassle and resource drain from your side.
From there, our Operations team will handle the day-to-day maintenance of the plan, from financial reporting to tax implications, and more.
If you’d like to see for yourself how our share plan administration software can help your company, book a one-on-one, no-obligation consultation today and we’ll demonstrate our award-winning software.